There are many ways to terminate your contract if you have cold feet. But not showing up for the scheduled closing is not one of them.
It’s simply wrong not to tell the seller, the closing attorney, the seller’s agent, and yourselves that you don’t intend to close the sale. Ask yourself: how would you like to be at the other end of the transaction? More importantly, you could open yourself up to prosecution if you go into hiding on settlement day. The seller can ask the court to bind you to the agreement, a concept known as “specific performance”. And your agent might demand that you pay their rightfully earned commission.
At a minimum, you will likely be asked to pay seller and agent fees, which could be substantial. Even so, you may decide it’s better than buying a house you changed your mind about.
Fortunately, as Redfin CEO Glenn Kelman recently told CNBC, “There are all kinds of ways to walk out of a deal if you don’t want to.” Maybe you lost your job, didn’t get financing, or couldn’t sell your current home. Or maybe the home inspection reveals things that put you off, or the seller isn’t keeping up their end of the bargain. Any of them can be used to end a purchase contract, but they all come with restrictions. It all comes down to the fine print.
(Note: I am neither a lawyer nor a real estate professional. Nothing of the following should be taken as legal advice; it is based solely on my experience reporting on real estate for over half a year. century. Before taking steps to end a contract, talk to your agent and seek legal advice.)
Use the contract as a roadmap, advises Luke Babich, CEO of Clever Real Estate, an agent matchmaking service. The purchase contract will specify all eventualities, conditions and deadlines that must be met. For example, you may need to apply for financing within a certain time frame or have the home inspection completed within a certain number of days. If you want to get out and the purchase depends on the sale of your current residence, simply stop trying to sell it. Or delaying the mortgage application, thus missing the deadline and voiding the contract. However, you may have to forfeit your deposit.
If you’ve already been approved for a loan, you can still frustrate the deal by doing something that will negatively affect your credit score, which your lender will check again just before closing. If something new appears on the report — a recent, expensive purchase, for example, such as a car — the lender might refuse financing.
But rather than spending money to ruin the deal, consider applying for several new high-limit credit cards. You don’t have to use them. But if all of a sudden you have access to tens of thousands of available loans, it may make your lender think twice about lending you money.
Losing your job will also affect your ability to repay a loan, although obviously you don’t want to quit just to sabotage a sales contract. But your lender may back down if you change jobs, especially if you’re going into a completely different field. A better way to cancel a sale is to use the home inspection – maybe even before it happens. Most contracts set a deadline for completing the inspection. If the date has not passed, you can notify the seller in writing that you have changed your mind and probably walk away with your deposit intact.
You can also walk if the deadline has passed, but you may have to give up your money. Sure, you can take your time ordering the inspection, thus missing the deadline and voiding the deal, but again, you’re putting your deposit at risk. Once the inspector files a report, you still have some leads. Hopefully nothing major comes up. But if it does – say the roof needs replacing or lead paint was found – you can use that as a reason to change your mind.
Even if the inspector doesn’t find much to complain about, you can use the report to backtrack. The contract probably calls for a “satisfactory” inspection, but this doesn’t have to be acceptable to the seller, only to you. You are also not obligated to give the report to the seller.
Another way to use the report is to require the seller to fix anything noted, even small things like a broken switch plate or a sticky doorknob. If the seller balks, you’re out of business. If they agree, set a short deadline within which the work must be done. If the seller doesn’t move fast enough, you’re gone.
A low appraisal is another solution: if the appraisal is not up to par, you will need a larger down payment, which of course you don’t have. Or use your review of homeowners association documents as an exit strategy. You don’t need a reason – just that you’ve read the rules and don’t like them.
Lew Sichelman has been covering real estate for over 50 years. He is a regular contributor to numerous shelter magazines and housing and housing finance industry publications. Readers can contact him at [email protected]